Japan

In today’s briefing:

Hitachi Transport System (9086) Shareholders Get the BIG Win in This VLBO
ToyoKen (1890)- Infroneer Declines to Bid Up, YFO Now In Driver’s Seat – Now It’s A Range Trade
JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Apr 2022
Shimano (7309): Bumpy Part 2 – Channel Checks
Oriental Land’s New Medium-Term Plan: A Reality Check for Consensus
Z Holdings Q4 21 Results Reaction: Growth Pushed Back a Year; Downgrade to Neutral
Koito – Profitability Remains Under Pressure
Monex – Crypto Business Keeps Weakening But Valuation Discount Excessive
Mercari – Problems, Problems, But We Are Getting Bulled Up Anyway
Sky Perfect JSAT (Buy) – Q4 21 Results Reaction: A Huge Declaration of Confidence

Hitachi Transport System (9086) Shareholders Get the BIG Win in This VLBO

KKR and Hitachi Ltd (6501 JP) have a deal to get KKR to buy Hitachi Transport System (9086 JP) in a VLBO (Very Leveraged BuyOut).
As somewhat expected, it is a “split price deal” where Hitachi will accept a lower price for its 40% stake than minorities will receive in a Tender Offer.
This is a big win for Hitachi Transport shareholders, but the Tender Offer likely won’t start until late September.

ToyoKen (1890)- Infroneer Declines to Bid Up, YFO Now In Driver’s Seat – Now It’s A Range Trade

Toyo Construction (1890 JP) today released a change to its Target Opinion Statement for Infroneer’s takeover bid at ¥770/share. It supports the tender itself, but withdraws its recommendation investors tender.
Infroneer refused to raise their price, so this effectively kills their bid (though they will extend). TC will engage with Yamauchi Family Office which has separately offered to bid ¥1,000/share.
The dynamics have now changed. This is a range trade, and will likely take time unless Infroneer says “I’ll sell at ¥1,000/share.”

JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Apr 2022

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-April 2022.

Shimano (7309): Bumpy Part 2 – Channel Checks

By Henry Soediarko

Channel checks with Merida Industry (9914 TT) and Giant Manufacturing (9921 TT) on the Asia order book provide color on Shimano’s results so far.
Channel checks with the Dutch Accell Group (ACCEL NA) also do not show any encouraging data either.
Share buyback will provide short term relief but it won’t make revenue growth rate to be as high as early 2021.

Oriental Land’s New Medium-Term Plan: A Reality Check for Consensus

Oriental Land (4661 JP) fell more than 10% today after a strong earnings beat in 4QFY22, which saw revenue and OP beat consensus by ¥7.0bn and ¥8.6bn respectively.
The medium-term outlook is very disappointing with the company expecting no pricing growth and low park attendance.
After moving up nonsensically during COVID due to extremely inflated medium-term consensus, we think Oriental Land’s share price could start falling apart after this medium-term plan announcement.

Z Holdings Q4 21 Results Reaction: Growth Pushed Back a Year; Downgrade to Neutral

FY22 EBITDA guidance is disappointing as strategic investments accelerate yet again and leaving investors uncertain on whether previous guidance for FY23 can be met
We think ZHD’s FY23 target of ¥ 390bn in EBITDA is reachable but a meaningful beat, which is factored into consensus, is less likely
So FY22 is another transition year but without the excitement on the potential for LINE as an alternative theme. It is better to be on the sidelines.

Koito – Profitability Remains Under Pressure

Koito reported 4QFY22 results on the 27th of April and had a 16% revenue miss despite a 3% revenue beat for the quarter.
Top line momentum remains strong overseas but material costs continue to pressure gross margins.
Guidance for ¥67bn in OP was a significant miss vs. consensus at ¥92.3bn.

Monex – Crypto Business Keeps Weakening But Valuation Discount Excessive

Monex results were weak as OP of ¥14.9bn missed consensus estimates for ¥18.4bn in OP.
Gains for DeFi token sales failed to offset continued heavy spending in the US and de-SPAC costs at Coincheck at a time when crypto has been weak.
Despite the negatives, the Japan business continues to form a solid base and arguably almost justifies the entire market cap on its own.

Mercari – Problems, Problems, But We Are Getting Bulled Up Anyway

Mercari’s 3Q results underwhelmed with both revenue (-4.5%) and OP (¥2.9bn loss vs. a predicted ¥1.0bn profit) missed.
Guidance was also weak and problems with rising fraudulent transactions in Japan and low tax reporting thresholds for sellers in the US are headwinds.
Nevertheless, the drastic fall in the stock price appears to have gotten far ahead of these problems and ignores the bright future of the company in our view.

Sky Perfect JSAT (Buy) – Q4 21 Results Reaction: A Huge Declaration of Confidence

Sky Perfect Jsat (9412 JP) posted Q4 results and guidance that are ahead of expectations for profitability
The company has unveiled plan to re-leverage and invest more, starting with its recently announced JV with NTT , underscoring its confidence in the potential of the space business
The plan also includes a c. 60% increase in shareholder returns over the next five years, likely through the flexible application of share buybacks

Before it’s here, it’s on Smartkarma

Apr 28

Japan: Renesas Electronics, Keyence Corp, Hitachi Metals, Hitachi Construction Machinery, ZOZO Inc, Shin Etsu Chemical, Asahi Group Holdings, Advantest Corp and more

In today’s briefing:

Renesas (6723 JP) – Salutary Q1, Strong Q2 Forecast, and a BIG Buyback
Renesas – Like We Said… Accelerating
Keyence – Just Built Different
Hitachi Metals – Steel Price Recovery Probably Limits Downside Even in the Event of a Break
HCM – Obvious Blowout Is Obvious… Just Not to the Sell Side
Zozo – Q4 21 Results Reaction: Mixed but Underlying Consumer Growth Remains Solid
Shin-Etsu – FY23 Could Put Shin-Etsu Within a Step of ¥1trn in OP
Zozo – Operating Leverage Apparently Less Fun On The Downside
Asahi Raises Domestic Beverage Prices: Elastic “Beer” Demand Makes the Price Hike Unfavourable
Advantest – That Time in the Cycle When Orders Apparently Stop Being Important

Renesas (6723 JP) – Salutary Q1, Strong Q2 Forecast, and a BIG Buyback

About 9 days I ago I wrote Renesas (6723 JP) – On Top of Peer-Beating Growth, and Valuation… Watch for Buybacks. Today with Q1 earnings, they announced a ¥200bn buyback.
What appears to be a quite strong Q1 in automotive in both revenues and margins, and decent incremental margins, sees a stronger Q2 forecast (but less good incremental margins).
The Street is well behind guidance, and a buyback at the high end of potential guidance and coming earlier than expected is all to the good.

Renesas – Like We Said… Accelerating

Renesas’ 1Q numbers blew away guidance and consensus as revenue beat by 3.4% and adjusted OP beat by 16%.
Revenue growth was strong for both Auto and Industrial with Industrial margins also improving noticeably vs. last Q.
Renesas also announced a rather large buyback which is effectively a repurchase of the INCJ’s stake.

Keyence – Just Built Different

Another quarter another Keyence beat as revenue beat by 5.3% and OP beat by a more modest 4.7% due to high SG&A costs.
Sell side analysts on the conference call remain confused by the outperformance vs. peers because they fail to realise that Keyence gonna Keyence.
Despite this strength we remain cautious as Keyence is now a truly exceptional company that is being priced like a magical one.

Hitachi Metals – Steel Price Recovery Probably Limits Downside Even in the Event of a Break

Hitachi Metals started drifting noticeably below terms from early Nov last year and fell as low as 14% below the ¥2,181 offer price in early March.
Along with relatively strong guidance yesterday the company reaffirmed the commitment of the Bain consortium to the offer despite some delays.
We have no special insight into the actual likelihood of a break here but we do believe downside may be limited even if one occurs.

HCM – Obvious Blowout Is Obvious… Just Not to the Sell Side

HCM reported FY revenue of ¥1,025bn, just above our ¥1,010bn estimate and blowing away clueless consensus’ ¥963bn.
OP was ¥93.5bn despite the trouble in Ukraine/Russia, just below our ¥95bn estimate and significantly above consensus at ¥86.8bn and guidance of ¥84bn.
Guidance for a YoY OP decline is silly in our view and we suspect there will be a double digit increase.

Zozo – Q4 21 Results Reaction: Mixed but Underlying Consumer Growth Remains Solid

Results for Q4 and FY22 guidance were mixed with platform sales and revenue largely in-line but margins slightly weaker
The loss of a major B2B customer wipes out almost all the growth in that segment but core consumer growth remains solid (10%+) as do operating KPIs
The read across to parent Z Holdings is limited as the difference in company guidance and consensus operating profit is less than 1% of ZHD consolidated

Shin-Etsu – FY23 Could Put Shin-Etsu Within a Step of ¥1trn in OP

Shin-Etsu results were mostly in-line with revenue beating by 5% and OP both within 1% of consensus and just a touch above guidance.
OP was about 6% weaker than our estimate however driven by the Electronic Materials business.
The lack of guidance may worry some investors but trends look positive enough that results should end up materially above consensus.

Zozo – Operating Leverage Apparently Less Fun On The Downside

Zozo reported yesterday missing slightly across the board with OP missing consensus by 6.7% on a 0.7% miss at the top line.
GMV was reasonable due to apparent generosity on reward points and strong promotional spending.
OP guidance of ¥51.5bn was noticeably below consensus and while Zozo is considered conservative we expect a miss and long-term stagnation.

Asahi Raises Domestic Beverage Prices: Elastic “Beer” Demand Makes the Price Hike Unfavourable

Asahi Group Holdings (2502 JP) announced yesterday that it will raise the prices of a majority of its domestic beverage brands to pass the rising cost of raw materials to customers.
Although beers as a whole has a relatively inelastic demand, the price elasticity in different categories of beer varies quite a bit with high malt beers having highly elastic demand.
We think the price hike could be more detrimental to Asahi than its competitors as the company generates most of its domestic revenue from the price-sensitive high malt beer segment.

Advantest – That Time in the Cycle When Orders Apparently Stop Being Important

Advantest results were relatively uneventful with a marginal beat at the top line and a marginal miss at the OP level.
Guidance was decent however with both revenue and OP above consensus and some lowballing on margins suggesting some upside to guidance.
The company also said that it would no longer disclose orders because changing lead times made them less comparable because of course they do…

Before it’s here, it’s on Smartkarma

Apr 27

Japan: Hitachi Transport System, Koei Tecmo Holdings, Fanuc Corp, DISCO Corp, Omron Corp, Z Holdings, Workman Co Ltd, Fast Fitness Japan Inc, Shimano Inc and more

In today’s briefing:

Hitachi Transport (9086 JP) – Deciphering Takeover Price by Newspaper Article Language
Koei Tecmo – Potential For a Breakdown
Fanuc (6954 JP) | Orders Slide as Automation Slows
Disco (6146 JP): Orders Peaking, Blade Dicer Shipments Forecast to Decline
Omron – Better IAS Results Conceal Healthcare Segment Underperformance
Z Holdings (Buy) – FY22 Should Be Brighter
Fanuc – Frothy Current Conditions Set Up Big Potential Disappointment
Workman to Disrupt Footwear Market with ¥60 Billion Sales Target
Fast Fitness Japan (7092): Announced Upward Revision of Full-Year Guidance
Shimano (7309) | Time for the GCs

Hitachi Transport (9086 JP) – Deciphering Takeover Price by Newspaper Article Language

Hitachi has been in the process of selling Hitachi Transport System (9086 JP). An article in the Nikkei Thursday last suggested a deal was imminent (both companies report 28 April).
Bloomberg carried an article this morning with more numbers and implied arithmetic. Then they revised the language in the article.
There is STILL room for different interpretations of likely deal price if one tries to parse all the info provided and match it with history. But we may be there.

Koei Tecmo – Potential For a Breakdown

Koei Tecmo’s earnings yesterday were on the strong side with 4Q OP beating by 28.7% despite a 1.79% miss at the top line.
Thus, the typical pattern of heavy expensing of development costs in 4Q was missing and combined with some one offs could make hurdles for next year high.
With the stock struggling to gain positive momentum and few clear positive catalysts on the horizon we remain negative.

Fanuc (6954 JP) | Orders Slide as Automation Slows

Machine tool orders are losing momentum given the geopolitical risks and shortage of materials
Margins are also order pressure given soaring materials and transportation costs
FY3/23 OP guidance misses consensus, but it is not conservative. We expect the share price to head lower

Disco (6146 JP): Orders Peaking, Blade Dicer Shipments Forecast to Decline

By Scott Foster

FY Mar-22 sales and profits exceeded guidance, as expected. New orders declined slightly in 4Q but remained above sales.
Unfortunately, Disco has decided to stop disclosing orders and the order backlog. A cynic would say this signals the peak of the cycle.
1Q guidance looks conservative. That should be no surprise and no catalyst for the stock price. Shipments of blade dicers are forecast to decline by 10%. Beware.

Omron – Better IAS Results Conceal Healthcare Segment Underperformance

Omron’s 4Q results continued the trend of weakness in the FA sector and guidance was tepid unlike Yaskawa.
In particular, the Healthcare Segment’s margins appear to be normalising and poses a downside risk along with typical cyclicality.
At 14x EV/OP on guidance vs. a 10x multiple that we would consider fair, there is downside risk here.

Z Holdings (Buy) – FY22 Should Be Brighter

The company reports Thursday and markets have priced in bad news (shares down 22% YTD and 38% from November highs) but that pattern of weakness in year-end results isn’t new
It has happened the last four years as management’s penchant for investment dampens hopes for profitability growth but LINE synergies and digitization should enable double-digit EBITDA growth anyway
We are posting updated company forecasts/estimates including a separate table for PayPay

Fanuc – Frothy Current Conditions Set Up Big Potential Disappointment

Despite a dead cat bounce in Robomachine coming through as we suggested Fanuc’s 4Q OP missed consensus estimates by 14%.
Guidance was strong however with revenue guidance of ¥825.5bn materially above consensus’ ¥797.7bn.
This continues a pattern of weak results and strong guidance in the FA sector going into a tightening cycle which is concerning.

Workman to Disrupt Footwear Market with ¥60 Billion Sales Target

By Michael Causton

Workman sees an opportunity to disrupt the footwear market by creating Japan’s first national low price chain, with a strong focus on women’s shoes.
It launched the first store this month with prices as low as ¥680 and expects to have 200 stores in the near future.
The Japanese footwear market is ripe for disruption as Abc Mart Inc (2670 JP) diversifies and Chiyoda Co Ltd (8185 JP) and Gfoot Co Ltd (2686 JP) struggle to maintain momentum.

Fast Fitness Japan (7092): Announced Upward Revision of Full-Year Guidance

By Mita Securities

On April 26, Fast Fitness Japan (7092, the company) announced an upward revision of its full year FY3/22 guidance.
The company revised OP forecast from 2.6bn yen to 2.95bn yen (+28.7% YoY), and NP forecast from 1.1bn yen to 1.705bn yen (+85.3% YoY).
The revision was due to the progress of cost optimization and less than expected extraordinary losses, such as impairment losses.

Shimano (7309) | Time for the GCs

Normalization of inventories is not the end of the super cycle
Record high sales, operating profit and margins for a March quarter
The share price has already returned to attractive valuations. The short-term “sprinteurs” are out; time for the GCs to step up

Before it’s here, it’s on Smartkarma

Apr 26

Japan: Japan Post Insurance, Seven & I Holdings, Shimano Inc, Capcom Co Ltd, Tokyo Stock Exchange Tokyo Price Index Topix, Tosho Co Ltd and more

In today’s briefing:

TOPIX April Rebalance – Two Days To Go
Seven & I Investor Activism Update
Shimano (7309 JP) | EU Tax Cuts Keep Cycle Boom Rolling
Valorant Is Good For Japanese Esports and Bad for Krafton
Japan’s Governance: About the Article on Outside Directors (2)
Tosho (8920): Acquires Large-Scale Property in Suzuka. Warehousing for Tosho REIT

TOPIX April Rebalance – Two Days To Go

There are two days to go until the TOPIX April-end rebalance.
On an average-weighted, sector-neutral basis, the “announcement to event” trade is -0.3% from 7 April to 25 April. The rest of the buy vs sell basket is doing worse.
There should be ¥740bn-ish to buy and sell (each) on Wednesday at the close. If you have trades to execute in Japan, the attached spreadsheet shows where there is opportunity.

Seven & I Investor Activism Update

Value Act’s investor activism campaign has already made more progress than any other investor activism campaign in the recent past.
There are many similarities between ValueAct’s transformation plan and Seven & I Holdings (3382 JP)‘s letter to its shareholders, one might think the letter could be minutes from a meeting.
Therefore, we see no reason to get frustrated over the lack of tangible developments, as the management is fully on board and things are moving on nicely behind the scenes.

Shimano (7309 JP) | EU Tax Cuts Keep Cycle Boom Rolling

The drivers of bike demand are structural and have nothing to do with Covid. We expect the company to beat numbers this year.
EU regulation will drive huge growth in the bike market over the next several years and Shimano is uniquely positioned to benefit.
The stock price decline from over ¥35k to under ¥25k has brought valuations down to the bottom of the historical range.

Valorant Is Good For Japanese Esports and Bad for Krafton

Valorant’s Masters 1 Tournament concluded today in Iceland with North America’s Optic Gaming defeating Brazil’s Loud, leaving Japan’s Zeta Division in third place.
These are three key regions for viewership and Japan’s surprising performance bodes well for the esports scene in the country.
Gameplay for Valorant Mobile has also leaked and early indications are that Krafton could be cannibalised here.

Japan’s Governance: About the Article on Outside Directors (2)

By Aki Matsumoto

In Japanese companies, where the overwhelming majority of directors are internal executive directors, independent directors who are in the minority tend to be referred to as outside directors.
There are concerns about whether a company’s board that doesn’t embrace diverse values can sustain growth, and whether there is risk that growth will be hampered by lack of diversity.
The tendency of companies to hire friends as outside directors and to require them to play role in endorsing the executive’s-management shows an aspect of reluctance to embrace diverse values.

Tosho (8920): Acquires Large-Scale Property in Suzuka. Warehousing for Tosho REIT

By Mita Securities

On April 22, Tosho (8920, the company) announced that it would acquire a fixed asset (trust beneficiary certificate) under a sponsor support agreement with Tosho REIT Investment Corporation (Tosho REIT)
Based on the announced location, we confirmed the map and found that Aeon Town Suzuka is located in the same area
The company sold 9.8bn yen in fixed assets (sports clubs, rental housing, and hotels) to Tosho REIT in March 2020 and 7.5bn yen in fixed assets (rental housing) to Tosho REIT in February 2022

Before it’s here, it’s on Smartkarma

Apr 25

Japan: Toyo Construction, Nissan Motor and more

In today’s briefing:

ToyoKen (1890) – YFO Proposes ¥1,000/Share So Now We Need Discussions
Renault (RNO FP) To Sell Nissan (7201 JP) Shares? Not Yet, and Not Yet Positive Nissan.

ToyoKen (1890) – YFO Proposes ¥1,000/Share So Now We Need Discussions

Yamauchi No10 Family Office (YFO) Friday declared a fourth buyer in its group and reached 26.28% as of the 19th.
Toyo Construction revealed a back-and-forth between itself and YFO in which it was revealed It YFO had also proposed a Tender Offer at ¥1,000/Share subject to discussions and Board Agreement.
This, and YFO’s position make Infroneer’s ¥770/share Tender Offer somewhat untenable. Shares could become more volatile.

Renault (RNO FP) To Sell Nissan (7201 JP) Shares? Not Yet, and Not Yet Positive Nissan.

On Friday, a Bloomberg article suggested Renault SA (RNO FP) is considering selling some of its 43% stake in Nissan Motor (7201 JP) to help fund its efforts in EVs.
Sources were “people familiar with the matter.” Since 2018, Bloomberg and Les Echos have been the outlets which do “scoops” on the Renault/Nissan relationship, but they are not always right.
However, it raises some interesting questions and possibilities. And given the prices, it makes the decision somewhat uncomfortable for both.

Before it’s here, it’s on Smartkarma

Apr 24

Japan: Nidec Corp and more

In today’s briefing:

Nidec (6594 JP): Structural Problems

Nidec (6594 JP): Structural Problems

By Scott Foster

Founder and Chairman Nagamori has reappointed himself CEO, obscuring the reasons why Nidec’s share price has declined.
Quarterly earnings should recover, but strategic investments look three years into the future while materials costs rise and the economic situation deteriorates.
Rising interest rates and compression of valuation multiples are likely to dampen the share price. Look to the long term without expecting a return to the glory days.

Before it’s here, it’s on Smartkarma

Apr 23

Japan: Toshiba Corp and more

In today’s briefing:

Toshiba (6502) – Now We Have “That One Piece Of News”
Toshiba – Market Reaction to Proposal Solicitation News Is a Great Short Opportunity

Toshiba (6502) – Now We Have “That One Piece Of News”

Toshiba announced that it will start a sale process by offering info, and running a two-round “strategic alternative” process. Info and non-binding proposals followed by due dili and binding proposals.
For me, this seems like “That One Piece Of News” which is required to make the range jump, and to get people into Now-We-Are-Going-To-Get-A-Deal.
We may not, of course, and it will be a long, complicated road. But this is a step change. Starting a beauty contest is a big deal.

Toshiba – Market Reaction to Proposal Solicitation News Is a Great Short Opportunity

Toshiba announced yesterday that they would be soliciting proposals on strategic alternatives specifically mentioning privatisation.
The stock is up 3.5% on the news and had been up as much as 6.5% in a very weak market despite the news being well foreshadowed.
At the current price we believe there could be limited scope for a significant premium and much downside if tech turns over.

Before it’s here, it’s on Smartkarma

Apr 22

Japan: Softbank Group, Nidec Corp, Hitachi Transport System, HS Holdings, Shiseido Company, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Softbank Group – Strong Dollar Impact Boosts Buyback Math Although Debt May Rise Too
Nidec – Small Precision Motors and Automotive Concerning
Hitachi Transport (9086) Takeover Deal Imminent
HS/Sawada: Khan Bank IPO Decided, and Earnings in A Week To Show Sharp Gain in BVPS/Liquidity
Shiseido: Shanghai Lockdown Adds Pressure to Faltering Japanese Cosmetics
Nidec (6594 JP) | The Second Coming of Nagamori
Japan’s Governance: About an Article on Prime Market Listed Companies

Softbank Group – Strong Dollar Impact Boosts Buyback Math Although Debt May Rise Too

The strong dollar has boosted Softbank’s predominantly dollar-linked asset value by 9% in yen terms (although reported net debt will also increase)
Also relevant is a decrease in the dollar cost of its ¥1,000bn share repurchase which was $8.8bn when announced but costs less than $8bn at the current exchange rate.
This has kept the share price up YTD and QTD despite weakness in the investment portfolio but tech weakness probably has more legs than dollar appreciation

Nidec – Small Precision Motors and Automotive Concerning

Nidec earnings were worse than we feared as 4Q OP was just ¥36.9bn below even our ¥40bn estimate and far below consensus at ¥48.5bn.
This was despite a 4.9% top line beat and there were some signs of kitchen sinking in our view.
Nevertheless, guidance for ¥210bn in OP next year, while below consensus, still feels aggressive in our view.

Hitachi Transport (9086) Takeover Deal Imminent

The Nikkei Leak Article of the Hitachi Transport takeover price is out. That suggests board meetings and deal announcement are imminent
The price suggested in the article comes out to be just under ¥8,000.
Past deals between KKR and Hitachi for Hitachi subs (and the language of the article on deal structure) suggest the minority Tender Offer Price could be different.

HS/Sawada: Khan Bank IPO Decided, and Earnings in A Week To Show Sharp Gain in BVPS/Liquidity

It looks like the Khan Bank IPO in Mongolia is on.
HS Holdings (former Sawada) will own <50% shortly. That will trigger de-consolidation of Khan Bank in Q2.
That could be meaningful. Right now, the entire capital structure is in flux because of recently announced/booked/closed asset sales and now this. Earnings are out 28 April.

Shiseido: Shanghai Lockdown Adds Pressure to Faltering Japanese Cosmetics

The market position of Japanese cosmetics in China is weakening with Japanese exports declining around 5.0% YoY in January and February 2022.
With Shanghai under a strict lockdown and the recovery of inbound demand taking more time than expected, it is possible that Shiseido Company (4911 JP) could downgrade its 2022 guidance.
These forces could take Shiseido’s valuation multiples to the pre-2013 level, resulting in a downside of close to 30%.

Nidec (6594 JP) | The Second Coming of Nagamori

Nidec is the best stock in Japan to play the rising adoption of EVs
The company is already dominating the largest E-Axle market in the world and will benefit from growing economies of scale
We think the company can hit its mid-term targets and see over 30% upside for the stock

Japan’s Governance: About an Article on Prime Market Listed Companies

By Aki Matsumoto

Nikkei article of March 18 titled “Prime Market Listed Companies Reel in ESG, Increase Value with ‘Non-Financial.'” I considered the issues in the article in reference to my previous article.
The prime market has limited investment targets because their market caps are mostly smaller for institutions, and their profitability needs further improvement, and valuations remain low in line with this.
It’s reasonable to consider the portion of market-cap exceeding net assets as “goodwill,” source of earning power and growth potential that has a more direct impact on future cash flows.

Before it’s here, it’s on Smartkarma

Apr 21

Japan: Toshiba Corp, Nidec Corp, Keyence Corp, Kura Sushi Inc and more

In today’s briefing:

Toshiba – Some Thoughts on the Bain Article
Nidec – Weakness Should Be Understood but Downside Risk at Earnings Remains
Keyence (6861 JP) | 3 Reasons to Ignore Inflation and Rising Rates
KRUS: Kura’s Roll Keeps Rolling

Toshiba – Some Thoughts on the Bain Article

Yesterday the Nikkei published an article featuring Bain MD Yuji Sugimoto who also featured heavily during their bid for Kioxia.
Sugimoto commented that in the event of a buyout there would be no break-up of Toshiba.
While plausibly a PR move directed at employees that stance raises the question of exactly how they would unlock value.

Nidec – Weakness Should Be Understood but Downside Risk at Earnings Remains

Consensus expectations for Nidec have drifted towards more reasonable levels in the last few months and a guidance miss is now baked in.
However, our data analysis suggests that while revenue may exceed consensus expectations OP could miss.
Guidance on the other hand could be strong, but with multiples elevated that does not mean there is upside risk here.

Keyence (6861 JP) | 3 Reasons to Ignore Inflation and Rising Rates

The stock has been hit by rising inflation and interest rates. Now is the time to buy
Keyence is well placed to weather the storm given it has pricing power, high margins, and low capital intensity
The P/B valuation of 6x is now back to a normalised range and the stock trades at a discount to global peers.

KRUS: Kura’s Roll Keeps Rolling

By Investment Talk

Kura Sushi is a dinky (~$540M market cap) sushi business that I have reported on for a little over one year.
The US subsidiary is das kind (German for ‘the child’ because, why not) of a well-capitalised parent with over 450 stores in Japan.
It’s a proof of concept venture in a new market, with a tried-and-tested business model, and a parent that provides ample liquidity to its fledging offspring.

Before it’s here, it’s on Smartkarma

Apr 20

Japan: Chubu Electric Power Co, Japan Post Holdings, Tsi Holdings, Ichigo Inc, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

S&P Global Clean Energy Index: Changes for Asia & Impact
Japan Post Holdings – Good Play On the BOJ’s Conundrum
TSI Holdings (3608) – That Old Gem – Lots of Visible Cash, and Lots More Invisible Cash
Ichigo (2337): Positive Impression on Successful Sales of Hotel and Commercial Facility
Japan’s Governance: About an Article on Quarterly Disclosure Controversy

S&P Global Clean Energy Index: Changes for Asia & Impact

By Brian Freitas

There are 12 additions to the S&P Global Clean Energy Index for Asia. The changes were announced on 8 April and will be implemented at the close on 22 April.
Largest inflows are on Chubu Electric Power, China Yangtze Power, Adani Green Energy, Energy Absolute, LONGi Green Energy Technology, JA Solar Technology, Tianjin Zhonghuan Semiconductor and Sungrow Power Supply.
The largest outflows are expected on Meridian Energy (MEL NZ), Contact Energy (CEN NZ) and Xinyi Energy Holdings Ltd (3868 HK).

Japan Post Holdings – Good Play On the BOJ’s Conundrum

The BOJ looks increasingly trapped between a rapidly depreciating yen and a stated desire to hold rates low.
We believe that the BOJ will eventually have to compromise on its 0.25% ceiling for the ten year JGB once inflation data gives them cover to do so.
However, we believe Japan Post Holdings could potentially benefit from both macro forces and consider it one of the best risk-reward positions in Japan and perhaps globally.

TSI Holdings (3608) – That Old Gem – Lots of Visible Cash, and Lots More Invisible Cash

TSI Holdings has long had a lot of cash and securities but a dearth of income. It’s still that way.
Earnings were pretty good, but forecasts disappointing. The MTP is much more aggressive.
The company has an EV/Revenue of 0.03x and EV/EBITDA of 0.5x. THEN it has a lot more interesting stuff hidden away. This could double or more in two years.

Ichigo (2337): Positive Impression on Successful Sales of Hotel and Commercial Facility

By Mita Securities

Ichigo (2337, the company) announced full-year results for FY2/22. Net profit came in at 6.5bn (+28.8% YoY), within the company’s guidance range of 5.0-8.0bn yen
The company’s FY2/23 guidance is for NP of 6.5-8.5bn yen (+0.4-31.3% YoY). The QUICK consensus NP forecast is 8.8bn yen and our NP forecast is 8.0bn yen
The company announced share buybacks. The maximum number of shares to be repurchased is 1.17% of the total number of shares outstanding (excluding treasury shares)

Japan’s Governance: About an Article on Quarterly Disclosure Controversy

By Aki Matsumoto

Although the debate over the elimination of quarterly disclosures has resurfaced, it is likely that quarterly disclosures will continue by consolidating financial disclosure documents into a single document.
There were concerns that TSE stock trading volume would decline if quarterly disclosure were abolished, based on the poorly reasoned argument that “quarterly disclosure encourages short termism among investors.”
Financial Summary is required to disclose information promptly for “importance of disclosing information on investment decisions.” Quarterly Securities Report is required as a legal document for “reliability of financial statements.”

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